Five Real Estate Commissions Myths

Five Real Estate Commissions Myths

Real estate commissions are simple, and savings are even simpler.

Myth 1: Home Sellers Pay for Real Estate Commissions

One of the biggest myths about real estate commissions is home sellers pay for the real estate commissions. This is false. The homebuyer pays for all closing costs in any real estate transaction, this includes the cost of all commissions. The homebuyer is the only one who writes a check at the end of the transaction. This myth is originated with the fact that the seller typically negotiates the listing rate and offers a buyer’s agent commission to the buyer’s agent. Home seller does lose net equity from higher commissions, but the homebuyer pays a higher final price of home sale due to higher commissions.

This distinction becomes evident when one considers the fact that the homebuyer receives their own money back in the form of a tax-free buyer’s refund. If a seller was to pay for commissions, the buyer would not be able to receive a home buyer’s refund from their agent – the IRS would not have allowed it. In 2007 the IRS has ruled that that commission refunds to home buyers are legitimately not taxable.

The IRS position is that payment or credit at closing to the home Buyer represents an adjustment to the purchase price of the home and generally is not includible in a homebuyer's gross income. The IRS centers its reasoning on similar cost-saving options available for consumers in other industries, such as when an auto purchase manufacturer offers rebates and similar financial incentives that represent an adjustment to the purchase price. This argument is only possible provided that the homebuyer pays for all real estate commissions.

Myth 2: Buyer’s Agents Work for Free

This myth yields Zillow Group's 2.7 billion USD (2019) annual advertising revenue. There are zero disadvantages when entering into a buyer’s refund agreement with a fully qualified, licensed, and motivated real estate agent, but Zillow doesn’t want homebuyers to know this.

The majority of Zillow revenue comes from uncompetitive buyer’s agents who pay massive amounts of money to advertise against active home listings, hoping that a uniformed (or rather deliberately misinformed) homebuyer would contact them. These agents typically say something like: “the buyer’s agents work for free so there no cost to you, so here is the agreement to sign.”

In reality, buyer’s agent fees are incorporated into the final mortgage sum. These fees are very real and always increase the costs of buying a home. Highly competitive buyer’s agents will compete for your business by offering to refund some money back from commissions they receive.

For higher-end homes such refunds can be incredibly valuable, ranging from $10,000 to $50,000, and for luxury homes, over $100,000. HomeOpenly aggregates buyer’s refunds from local agents without any costs to home buyers or real estate agents, as an Open Marketplace. We offer this information to you without any costs to you or the agent who offers these savings to you. Simple, indeed.

Myth 3: Consumers Don’t Care About Real Estate Commission Savings

This myth originates from the fact that consumers care about the total outcome of the transaction more than they do about the costs of hiring a real estate agent. Yes, the final outcome is the only thing that matters. A home seller must be able to sell their home for the best possible price. A homebuyer must be able to negotiate the best deal with the seller. This is what real estate agents are for – to help consumers improve their outcomes.

However, and this is a big one, the price of the real estate agent’s services is negotiable and is highly competitive. There are dozens, tens of dozens, hundreds, and sometimes thousands, of local real estate agents looking to do business with you. Real estate agents’ services are valuable, but they are an open market.

Today, homes in the United States are valued very differently than homes valuations fifty years ago. A home that was worth $200,000 fifty years ago is easily worth $2,000,000 in today’s money. However, the “6% standard commission” remains the same old made-up "standard." This is why HomeOpenly aggregates local offers from local real estate professionals who choose to price their services competitively in local markets. We utilize e-commerce as an effective real estate savings mechanism.

The fees associated with buying and selling a home in today’s economy define affordability. Homebuyers and home sellers who choose to act on potential savings available to them actively participate in affordable housing options, rather than getting sold on uncompetitive housing necessity.

Myth 4: Consumers Don’t Care About Real Estate Referral Fees

Blanket referral fees are truly tragic experience for home buyers and home sellers. Most consumers who use “blanket” referral fee networks are simply unaware of the harm imposed on their experiences.

First, “blanket” referral fees are plain fraud. RESPA (12 U.S.C. 2607) Section 8 and the U.S. Code of Federal Regulations 12 CFR Part 1024.14(g)(v) narrowly allows payments pursuant to cooperative brokerage and referral arrangements between real estate agents and real estate brokers. This limited exemption on kickbacks only applies to fee divisions within real estate brokerage arrangements when all parties are acting in a real estate brokerage capacity.

To comply in good faith with RESPA (12 U.S.C. 2607) Section 8 exception for cooperative brokerage and referral arrangements, real estate agents must render referral agreements in a particular instance for a particular transaction. Two brokers, acting in a real estate brokerage capacity, may discuss a commission split or referral fee only for a specific transaction at hand. Blanket referral agreements between brokers, however, are a per se violation of the Sherman Act.

Consumers do care about savings, but referral fee networks systematically lie to consumers about how referral fees work. Our service is 100% free, with no catch. Agents don't pay us to be listed, so you get the best match" is a typical lie offered to consumers by referral fee networks.

In reality, real estate agents only sign-up with referral fee networks because the price of the referral fee can be easily incorporated into their client’s agreement with excessive commissions. Referral fee networks are, secretly, brokers, and do not have any legal authority to rate the quality, set rates, or offer services offered by other real estate brokers. All referral fee networks are 100% biased, by default. There are no exceptions.

Myth 5: Real Estate Commissions Are Standard

There is no such thing. At HomeOpenly we are dedicated to offering consumers a new way to buy and sell homes in the United States on the open market by aggregating local rates and refunds from competitive local agents. Our goal is to offer consumers an unprecedented new experience that delivers over $15 billion in savings each year.

While Zillow Group aims to preserve its $2.7 billion revenue stream, HomeOpenly is aggregating $15 billion in savings entirely for consumer benefit. There are many different ways to buy or sell a home, but the best way is to focus on saving money.

HomeOpenly is unique because we are never paid by brokers, instead, our revenue comes from clearly-labeled auxiliary ads from mortgages, insurance, and refinance services. Our goal is to deliver to consumers the real money you have been missing, no back-ended agreements, no partner agents, only savings.

Related to: real estate, commissions, buyer refunds, listing rates, referral fees, home buying, home selling

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Last updated: July 05, 2020
First published: July 05, 2020